Mexico’s private spending decreased by 0.6% year-on-year in the first quarter, a drop from the previous 0.4% increase. This change reflects a shift in economic activity during this period.

This downturn in private spending may impact the broader economy, affecting various sectors intertwined with consumer activity. A further analysis of such trends could provide insights into future economic conditions.

Impact On Economy

Taken at face value, the latest dip in Mexico’s private spending – down 0.6% compared to the previous year – doesn’t appear catastrophic. However, stepping back from the headline, the reversal from a 0.4% gain in the prior period flags a change in direction. This deceleration, especially after consistent if modest increases, suggests that households and businesses may be adjusting expectations amid tighter conditions.

Ramírez’s central bank has been holding its benchmark rate at a high level, nudging consumers and firms to rethink borrowing. Inflation remains above targets, and although it has cooled somewhat, persistent price pressures continue to weigh on real incomes. Put plainly, there’s less slack in the system than there was a year ago, and consumption is starting to reflect that. For those monitoring volatility and future rates, this kind of behavioural shift in spending can feed into positioning, particularly in rate-sensitive instruments.

Looking beyond the headline number, goods consumption has softened more sharply than services. That’s often the case when inflation bites harder at lower-income brackets, where durable purchases are deferred first. With Pemex still under strain and the government funnelling fiscal buffers towards social schemes ahead of the transfer of power, private sector dynamism gets little tailwind from policy right now. Traders might interpret this as limited upside risk to forward growth expectations, which could weigh on front-end yields if replicated across indicators.

Mood Of The Market

The shape of the peso curve has already flattened, but we question whether markets are fully pricing the speed and scale of the slowdown. The figures could justify a re-pricing of rate cut bets, especially if forward-looking indicators begin to show a clear pullback in hiring or lending. Even small adjustments in view—quarter by quarter—can shift options pricing as short-term bias adjusts.

Herrera’s recent comments on the strength of domestic demand may need to be revisited. A contraction in household expenditure is typically one of the earlier signals of economic fatigue. Many actors positioned for a stable or strengthening consumption profile may start reducing exposure to retail-linked equities or shift from cyclicals to defensives in options strategies.

Meanwhile, in terms of implied volatility, we’ve seen a marginal uptick in the past week, possibly reflecting the market’s growing awareness of these softer figures. That uptick opens space for strategies capitalising on increased gamma in the short term. Any pre-emptive policy guidance from Banxico could accelerate those moves.

We’re also watching cross-border flows more closely. Any deterioration in private demand might strain tax receipts, pushing more debt issuance into the second half. This could impact TIIE swap curves, bringing more attention to relative steepeners. There’s a chance that longer-dated maturities begin to price either fiscal slippage or diminished private investment — both fuelled by this downturn.

From our side, the cues are pointing to deepening caution, not yet alarm. But patterns matter. Private consumption doesn’t reverse overnight without underlying pressure. Traders positioning for Q3 should, at the very least, reassess base assumptions about domestic momentum. While this may not signal an outright downturn, the moderation is enough to make repricing risk worthwhile.

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